The Employment Situation release for January 2023 incorporated annual benchmark revisions to establishment survey series, and reported population controls for the household survey series. NFP at 517 thousand exceeded the Bloomberg consensus of 115 thousand.
Guest Contribution: “Gauging Recessions with the Jobs-Workers Gap – January 2023”
Today, we are fortunate to present a guest contribution written by Paweł Skrzypczyński, economist at the National Bank of Poland. The views expressed herein are those of the author and should not be attributed to the National Bank of Poland.
We present an update of the jobs-workers gap discussed in previous posts: [1], [2], [3].
The Cyclically Adjusted Budget Balance and Federal Debt Held by the Public: Time Series
As a share of potential GDP (CBO May 2022 estimates):
Recession Probabilities Incorporating Foreign Term Spreads
Foreign term spreads in several major financial centers have inverted (you can see the yield curves here). What is the probability of a recession 12 months ahead, using the 10yr-3mo term spread, the foreign (Germany, UK, Japan, Canada) 10yr-3mo term spread, and the national Financial Conditions Index (FCI), as suggested by Ahmed and Chinn (2022)? Answer: High
Different Recession Predictors at Different Horizons
Michael Kiley (FRB) has recently circulated a working paper showing that various indicators have greater predictive power at different horizons. Other papers have shown this for different term spreads, for credit spreads, foreign term spreads; in this case, Kiley shows unemployment and inflation have more predictive power at long horizons than short.
China GDP and Forecasts
Chinese GDP for q4 was released a couple weeks ago, show a resumption of growth. The IMF has upped its growth forecast (WEO), relative to October’s, by nearly a percentage point (y/y). Nonetheless, the level of GDP will match roughly what was expected back in April’s report.
IMF WEO on US GDP
The IMF’s World Economic Outlook January update is out, with some slight upward revisions to world output projection growth for 2023, and more so to US and China. Here’s the US projection.
Term Spread Recession Forecasts for January 2024
Plain vanilla probit models indicate a high probability of recession, especially using the 10yr-3mo spread:
Data Sources: A Compendium [Updated]
For students in my courses, some useful data links.
The Cyclically Adjusted Federal Budget Balance
Just a reminder – the budget balance is endogenous (as long as one believes in a fiscal multiplier).